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									                                                          Portfolio Matrices


                                                  McKinsey's Industry Attractiveness/Company Strength Matrix



                                               High                            Invest,
                                                                               grow
                            Company Strength




                                               Medium         Maintain position,
                                                              concentrate on segment



                                                         Divest,
                                               Low       withdraw
                                                        Low         Medium      High

                                                        Industry Attractiveness


Source: Rowe, et al., 1994:257
                                                         Directional Policy Matrix (DPM)


                                                        Diversification   Market           Market leadership;
                                               High
                                                                          segmentation     innovation
                          Company Capability
                                                        Phased            Maintenance of   Expansion;
                                               Normal   withdrawal;       position;        product
                                                        merger            market           Differentiation
                                                                          penetration


                                                                          Imitation;
                                                                                           Cash
                                               Low      Divestment        Phased
                                                                                           generation
                                                                          withdrawal

                                                        Unattractive        Average         Attractive

                                                                      Market Potential




Source: Rowe, et al., 1994:257
                  The Growth-Share Matrix
                    Matrix                                                    Relative Market Share
                                                                             High                 Low




                                               Market Growth
                                                                      Star                    Question Mark
                                                               High


                                                               Low    Cash Cow                          Dog


                    Dimensions of the Matrix
                                                                19x1          19x0
                    J External:   Market growth rate (%) = Total market - Total market x 100
                                      (year 19xl)                 Total market
                                                                      19x0

                                                                                    19xl
                                                                               Business sales
                    J Internal:   Relative market share               =
                                                                          Leading competitor's sales
                                      (year 19xl)
                                                                                    19xl


                  Cut-off points
                  J Horizontal: Industry growth rate, or GNP growth rate, or weighted average of in-
                                 dustries growth rate, or managerial objective for overall growth
                  J Vertical:    Relative market share equal to 1 for separating leadership from fol-
                                 lowership, or equal to 1.5 to indicate strong leadership or dominance

Source: Hax & Majluf, 1991:186
                          Business             Market Share       Business          Investment          Net Cash
                          Category             Thrust             Profitability     Required             Flow

                                                                                                     Around zero or
                          Stars                Hold/increase         High             High
                                                                                                     slightly negative

                          Cash Cows               Hold               High             Low            Highly positive


                                                  Increase     None or negative     Very high        Highly negative
                          Question
                                           H
                          Marks
                                                 Harvest/      Low or negative      Disinvest           Positive
                                                  Divest
                                                 Harvest/
                          Dogs                                 Low or negative      Disinvest           Positive
                                                  Divest

                      H   There is a selective application of the strategy depending on the decision made with regard to
                          the business: either to enter aggressively or withdraw.




Source: Hax & Majluf, 1991:186
                                                     The Industry Attractiveness-Business Strength Matrix

                Matrix                                                        Industry Attractiveness
                                                                           High      Medium           Low

                                                                        Investment
                                                         High                           Selectiv      Selectivity
                                                                            and
                                                                                           e
                                                                          growth



                                 Business Strength
                                                                                        growth


                                                                         Selectiv                      Harvest/
                                                         Medium             e
                                                                                       Selectivity
                                                                                                        Divest
                                                                         growth


                                                                                        Harvest/       Harvest/
                                                         Low            Selectivity
                                                                                         Divest         Divest



                Dimensions of the Matrix

                J Industry Attractiveness:                      Subjective assessment based on external factors, noncontrollable by the
                                                                firm, that are intended to capture the industry and competitive structure
                                                                in which the business operates

                J Business Strength:                            Subjective assessment based on the critical success factors, largely con-
                                                                trollable by the firm, that define the competitive position of a business
                                                                within its industry




Source: Reproduced from A.T. Kearney, Inc., Chicago, III. by Hax & Majluf, 1991:187
                         Generic Strategies                             Industry Attractiveness
                                                         High                    Medium                       Low
                                                                          Identify growth segments   Maintain overall position
                                                Grow
                                                                          Invest strongly            Seek cash flow
                                         High   Seek dominance
                                                                          Maintain position          Invest at maintenance
                                                Maximize investment
                                                                           elsewhere                  level
                   Business Strength




                                                Evaluate potential
                                                 for leadership via       Identify growth segments   Prune lines
                                       Medium    segmentation             Specialize                 Minimize investment
                                                Identify weaknesses       Invest selectively         Position to divest
                                                Build strengths
                                                                                                     Trust leader's
                                                Specialize                Specialize                  statesmanship
                                         Low    Seek niches               Seek niches                Sic on competitor's
                                                Consider acquisitions     Consider exit               cash generators
                                                                                                     Time exit and divest




Source: Reproduced from A.T. Kearney, Inc., Chicago, III. by Hax & Majluf, 1991:187
         The Life-Cycle Portfolio Matrix (Hax & Majluf, 1991:188-192)

Matrix
                                                            Maturity

                                              Embryonic     Growth        Mature            Aging

                                  Dominant


                                  Strong
           Competitive Position

                                  Favorable


                                  Tenable


                                  Weak


                                  Nonviable




                                                          Wide range of strategic options


                                                          Caution, selective development


                                                          Danger, withdraw to market niche, divest or liquidate
                                                                                               DEVELOPMENT STAGE
Dimension of the Matrix
                                             DESCRIPTORS         Embryonic                 Growth                       Mature                      Aging
                                             Market Growth   Accelerating;           Faster than GNP,             Equal to or slower       Industry volume
JExternal:                                   Rate             meaningful rate         but constant or              than GNP, cyclical       cycles but declines
  Stages of industry maturity judgmentally                    cannot be calculated    decelerating                                          over long term
  assessed based on the following eight                       because the base
  external factors and their corresponding                    is too small
  description
                                             Industry        Usually difficult to    Substantially exceeds the    Well-known;              Saturation is reached;
                                             Potential        determine               industry volume, but is      primary markets          no potential remains
                                                                                      subject to unforeseen        approach saturation
                                                                                      developments                 industry volume


                                             Breadth of      Basic product           Rapid proliferation          Product turnover, but    Shrinking
                                             Product Lines    line established        as product lines are         little or no change
                                                                                      extended                     in breadth

                                             Number of       Increasing rapidly      Increasing to peak;          Stable                   Declines; but business
                                             Competitors                              followed by shake-out                                 may break up into
                                                                                      and consolidation                                     many small regional
                                                                                                                                            suppliers


                                             Market Share    Volatile                A few firms have major       Firms with major         Concentration
                                             Stability                                shares; rankings can         shares are entrenched    increases as marginal
                                                                                      change, but those with                                firms drop out;
                                                                                      minor shares are                                      or shares are dispersed
                                                                                      unlikely to gain major                                among small local
                                                                                      shares                                                firms

                                             Purchasing      Little or none          Some; buyers are             Suppliers are well       Strong; number of
                                             Patterns                                aggressive                    known; buying            alternatives
                                                                                                                   patterns are estab-      decreases
                                                                                                                   lished

                                             Ease of Entry   Usually easy, but       Usually easy, the presence   Difficult; competitors   Difficult; little
                                                              opportunity may         of competitors is offset     are entrenched,          incentive
                                                              not be apparent         by vigorous growth           and growth is
                                                                                                                   slowing


                                             Technology      Concept development     Product line refinement      Process and materials    Role is minimal
                                                              and product             and extension                refinement; new
                                                              engineering                                          product line
                                                                                                                   development to renew
                                                                                                                   growth
Dimensions of the Matrix (cont.)


         J Internal:   Competitive position of the business arrived at judgmentally, based on the following six com-
                       petitive categories:



                                     Criteria for Classification of Competitive Position
             1.   Dominant: Dominant competitors are very rare. Dominance often results from a quasi monopo-
                  ly or from a strongly protected technological leadership.
             2.   Strong: Not all industries have dominant or strong competitors. Strong competitors can usually
                  follow strategies of their choice, irrespective of their competitors' moves.
             3.   Favorable: When industries are fragmented, with no competitor clearly standing out, the leaders
                  tend to be in a favorable position.
             4.   Tenable: A tenable position can usually be maintained profitably through specialization in a nar-
                  row or protected market niche. This can be a geographic specialization or a product specializa-
                  tion.
             5.   Weak: Weak competitors can be intrinsically too small to survive independently and profitably
                  in the long term, given the competitive economics of their industry, or they can be larger and po-
                  tentially stronger competitors, but suffering from costly past mistakes or from a critical weak-
                  ness.
             6.   Nonviable: Represents the final recognition that the firm has really no strength whatsoever, now
                  or in the future, in that particular business, and therefore, exiting is the only strategic response.
Generic Strategies
A. Market share thrust

               Embryonic                 Growth               Mature                     Aging
            All out push for share   Hold position        Hold position
Dominant    Hold position            Hold share           Grow with industry
                                                                                     Hold position

            Attempt to improve       Attempt to improve   Hold position              Hold position
Strong       position                 position                                        or
            All out push for share   Push for share       Grow with industry         Harvest
            Selective or all out     Attempt to improve   Custodial or maintenance
                                                                                     Harvest
Favorable    push for share           position
                                                                                      or
            Selectively attempt to   Selective push for   Find niche and attempt
                                                                                     Phased withdrawal
             improve position         share                to protect
            Selectively push for     Find niche and       Find niche and hang on     Phased withdrawal
Tenable
             position                 protect it           or                         or
                                                          Phased withdrawal          Abandon
             Up                      Turnaround           Turnaround
Weak          or                      or                   or                        Abandon
             Out                     Abandon              Phased withdrawal
B. Investment requirements


                      Embryonic                          Growth                    Mature              Aging
                    Invest slightly faster       Invest to sustain growth         Reinvest as          Reinvest as
  Dominant           than market dictates         rate (and preempt new [?]        necessary            necessary
                                                  competitors)

                    Invest as fast as market     Invest to increase growth rate   Reinvest as          Minimum
  Strong             dictates                     (and improve position)           necessary            reinvestment
                                                                                                        or Maintenance
                                                                                                       Minimum
                                                 Selective investment to          Minimum and/or
                                                                                                        maintenance
  Favorable          Invest selectively           improve position                 Selective
                                                                                                       Investment or
                                                                                   reinvestment
                                                                                                        Disinvest
                                                                                  Minimum
                                                 Selective investment                                  Disinvest or
  Tenable           Invest (very) selectively                                      reinvestment or
                                                                                                        Divest
                                                                                   Disinvest
                                                                                  Invest selectively
  Weak              Invest or Divest             Invest or Divest                  or Disinvest
                                                                                                       Divest



   The terms invest and divest are used in the broadest sense and are not restricted to property, plant, and equipment.
C. Profitability and cash flow

                         Embryonic                    Growth                  Mature                         Aging
                      Probably                   Profitable               Profitable                    Profitable
    Dominant           profitable but not        Probably net             Net cash producer             Net cash producer
                       necessary                  cash producer
                      Net cash borrower           (but not necessary)

                      May be unprofitable        Probably profitable      Profitable                    Profitable
    Strong
                      Net cash borrower          Probably net cash        Net cash producer             Net cash producer
                                                  borrower

                      Probably unprofitable      Marginally profitable    Moderately profitable         Moderately profitable
    Favorable         Net cash borrower          Net cash borrower        Net cash borrower             Cash flow balance

                      Unprofitable               Unprofitable             Minimally profitable          Minimally profitable
    Tenable           Net cash borrower          Net cash borrower or     Cash flow balance             Cash flow balance
                                                  Cash flow balance

                      Unprofitable               Unprofitable             Unprofitable                  Unprofitable
    Weak              Net cash borrower          Net cash borrower or     Possibly net cash             (Write-off)
                                                  Cash flow balance        borrower or
                                                                           Net cash producer


In addition, to cash throw-off or use, each unit may use or throw-off managerial resources.
Note: In some cases, the tax shield value of a unit should be taken into account in evaluating unit performance.

In addition to the previously prescribed generic strategies, the ADL methodology recommends broad action programs
depending on the position of the business unit in its matrix. The strategies of business units are categorized according
to four different families: natural development, selective development, prove viability, and out, which are broadly char-
acterized in the following display.
                              Stages of industry
                                        Maturity          Embryonic       Growth       Mature    Aging
                      Competitive Position
                       Dominant

                       Strong
                                                                          Natural
                       Favorable                                        development

                       Tenable

                       Weak                                                                       Out

                       Source: Arthur D. Little, Inc.


         Each family of businesses has the following options regarding the definition of its strategic thrusts:

              Natural Development                       Selective Development         Prove Viability    Out

              Start-up                                  Find niche                    Catch-up          Withdraw
              Growth with industry                      Exploit niche                 Renew             Divest
              Gain position gradually                   Hold niche                    Turnaround        Abandon
              Gain position aggressively                                              Prolong existence
              Defend position
              Harvest


Once having selected the appropriate strategic thrust from among the ones available for each family, you are offered
the following menu of broad action programs:

    A    Backward integration                                         M    Market rationalization
    B    Development of overseas business                             N    Methods and functions efficiency
    C    Development of overseas facilities                           O    New products/New markets
    D    Distribution rationalization                                 P    New products/Same market
    E    Excess capacity                                              Q    Production rationalization
    F    Export/Same product                                          R    Product line rationalization
    G    Forward Integration                                          S    Pure survival
    H    Hesitation                                                   T    Same products/New markets
    I    Initial market development                                   U    Same products/Same markets
    J    Licensing abroad                                             V    Technology efficiency
    K    Complete rationalization                                     W    Traditional cost-cutting efficiency
    L    Market penetration                                           X    Unit abandonment

The ADL methodology suggests the following mapping among families, strategic thrusts, and broad action programs:
                                                                                                                   Generic Strategies
                                                                    Strategies   A B C D       E   F G H I      J K L M N O               P Q R       S   T   U V W X
                                                    Strategic Thrust                                       NATURAL DEVELOPMENT
                                                    Start-up                                   E               I            L
                                                    Growth with industry         A B C             F   G            J               N     P               T   U
                                                    Gain position gradually                            G                    L                             T
                                                    Gain position aggressively       B C       E       G                    L       N O   P               T       V

                                                    Defend position              A     C                                            N                         U   V W

                                                    Harvest                                D               H            K       M             Q R             U       W
                                                                                                           SELECTIVE DEVELOPMENT

                                                    Find niche                   A                     G       I            L   M                 R       T

                                                    Exploit niche                    B C       E                            L       N     P                   U V
                                 Strategic Thrust




                                                    Hold niche                         C   D                                        N         Q               U
                                                                                                               PROVE VIABILITY

                                                    Catch-up                               D   E                            L M           P   Q R

                                                    Renew                                  D                                    M       O P   Q R             U

                                                    Turn around                            D                                L   M N           Q   R               V W

                                                    Prolong existence            A         D       F                J   K       M N           Q R     S   T           W
                                                                                                               WITHDRAWAL

                                                    Withdraw                               D                                    M             Q   R                   W

                                                    Divest                                 D                            K                     Q   R S

                                                    Abandon                                                                                                               X




Source: Arthur D. Little, Inc.
The Alternative Boston Consulting Group Matrix
Matrix                                            Size of Competitive
                                                      Advantage

                                               Small               Large




                 (Opportunities for
                  Ways to Compete

                   differentiation)
                                      Many   Fragmented         Specialization



                                      Few    Stalemate           Volume




Dimensions of the Matrix

J Ways to Compete: Assess judgmentally whether there are many or few ways to achieve com-
                   petitive advantage. This is greatly determined by the capabilities of dif-
                   ferentiation within the industry.

J Size of Competitive
    Advantage:        Assess judgmentally whether the extent and sustainability of the advantage
                      is small or large. This is largely dependent on the size of barriers to entry
                      into the industry.
     Generic Strategy




                     Category of                             Generic
                      Business                               Strategy

                    Volume           J Lowest cost position, sales leadership

                    Specialization   J Either niche in a segment of the market or cover the
                                        entire market with differentiated products

                                     J Do not get stuck in the middle

                    Fragmented       J Many ways to compete. Look at your relative
                                        strengths and unique competencies

                    Stalemate        J Survive, reduce costs, maximize productivity




Source: Hax & Majluf, 1991:193
      Strategic Position and Action Evaluation (SPACE)
                       (Rowe, et al., 1994:255-270)

                                      SPACE Chart

                                             High
                  Company’s
                   Financial
                   Strength
                     (FS)                6

            Conservative                 5                     Aggressive
                                         4

                                         3

                                         2
                       High                                        Low
                                         1

Low                                                                                         High
               -6 -5   -4   -3   -2    -1           1    2     3     4   5   6
      Company’s                          -1
      Competitive                                                                Industry
                                        -2                                       Strength
      Advantage
        (CA)                            -3                                         (IS)
                                                        High
                                        -4

               Defensive                -5                     Competitive
                                        -6
                       Environmental
                         Stability
                           (ES)
                                             Low
                                       AGGRESSIVE POSTURE



                                       Strength
                                       on all
                                                    FS
                                                                .   Aggressive

                                       dimensions



                                      CA                              IS



                                                    ES


     This posture is typical in an attractive industry with little environmental turbulence. The company
     enjoys a definite competitive advantage, which it can protect with financial strength. The critical
     factor is entry of new competition. Firms in this situation should take full advantage of
     opportunities, look for acquisition candidates in their own or related industries, increase market
     share, and concentrate resources on products that have a definite competitive edge.



Source : Rowe, et al., 1994, p.260.
                                           COMPETITIVE POSTURE


                                           Competitive
                                                           FS
                                           advantage
                                           in good
                                           industry...



                                      CA ...but relative             IS
                                           weakness in
                                           financial and
                                           environmental
                                           stability     ES
                                                                . Competitive




     This posture is typical in an attractive industry. The company enjoys a competitive advantage in a
     relatively unstable environment. The critical factor is financial strength. Firms in this situation
     should acquire financial resources to increase marketing thrust, add to the sales force, extend or
     improve the product line, invest in productivity, reduce costs, protect competitive advantage in a
     declining market, and attempt to merge with a cash-rich company.


Source : Rowe, et al., 1994, p.260.
                                           CONSERVATIVE POSTURE


                                   Conservative   .   FS
                                                               Financially
                                                               sound...




                                          CA                                  IS
                                                           ...but market is
                                                           very competitive
                                                           and it is waning
                                                      ES



     This posture is typical in a stable market with low growth. Here the company focuses on financial
     stability. The critical factor is product competitiveness. Firms in this situation should prune the
     product line, reduce costs, focus on improving cash flow, protect competitive products, develop
     new products, and gain entry into more attractive markets.



Source : Rowe, et al., 1994, p.260-261.
                                            DEFENSIVE POSTURE

                                                  FS




                                       CA                               IS


                                              .
                                      Defensive
                                                  ES
                                                                   Relative
                                                                   weakness
                                                                   on ost
                                                                   dimensions




       This posture is typical of an unattractive industry in which the company lacks a competitive
       product and financial strength. The critical factor is competitiveness. Firms in this situation should
       prepare to retreat from the market, discontinue marginally profitable products, reduce costs
       aggressively, cut capacity, and defer or minimize investments.


Source : Rowe, et al., 1994, p.261.
                      Factors Determining Environmental Stability :



                                                                            R   C   E

Technological changes                       Many      0123456   Few
Rate of inflation                           High      0123456   Low
Demand variability                          Large     0123456   Small
Price range of competing products           Wide      0123456   Narrow
Barriers to entry into market               Few       0123456   Many
Competitive pressure/rivalry                High      0123456   Low
Price elasticity of demand                  Elastic   0123456   Inelastic
Pressure from substritute products          High      0123456   Low




 Note : R = Relative importance of factor
        C = Chance of sustaining
        E = Combined effect
                         Factors Determining Industry Strength :




                                                                               R   C   E

Growth potential                           Low           0123456   High
Profit potential                           Low           0123456   High
Financial stability                        Low           0123456   High
Technological know-how                     Simple        0123456   Complex
Resource utilization                       Inefficient   0123456   Efficient
Capital intensity                          Low           0123456   High
Ease of entry into market                  Easy          0123456   Difficult
Productivity, capacity utilization         Low           0123456   High
Manufacturers’ bargaining power            Low           0123456   High




Note : R = Relative importance of factor
       C = Chance of sustaining
       E = Combined effect
                      Factors Determining Competitive Advantage:



                                                                           R   C   E

 Market share                              Small      0123456   Large
 Product quality                           Inferior   0123456   Superior
 Product life cycle                        Late       0123456   Early
 Product replacement cycle                 Variable   0123456   Fixed
 Customer loyalty                          Low        0123456   High
 Competition’s capacity utilization        Low        0123456   High
 Technological know-how                    Low        0123456   High
 Vertical integration                      Low        0123456   High
 Speed of new product introductions        Slow       0123456   Fast




Note : R = Relative importance of factor
       C = Chance of sustaining
       E = Combined effect
                         Factors Determining Financial Strength :




                                                                                 R   C   E

   Return on investment                        Low          0123456   High
   Leverage                                    Imbalanced   0123456   Balanced
   Liquidity                                   Imbalanced   0123456   Solid
   Capital required versus capital available   High         0123456   Low
   Cash flow                                   Low          0123456   High
   Ease of exit from market                    Difficult    0123456   Easy
   Risk involved in business                   Much         0123456   Little
   Inventory turnover                          Slow         0123456   Fast
   Economies of scale and experience           Low          0123456   High




Note : R = Relative importance of factor
       C = Chance of sustaining
       E = Combined effect
         Strategic Options and Generic Strategies




                     Status Quo                                Concentric
                                        FS                     Diversification
   Conglomerate
   Diversification                            Overall               Concentration
                               Focus            Cost
                                             Leadership
Diversification                                                        Vertical
                            Conservative     Aggressive                Integration

                       CA                                      IS
   Divestment               Defensive        Differentiation           Concentric
                            Gamesmanship     Competitive               Merger
      Liquidation                                                   Conglomerate
                                                                    Merger
                                        ES
          Retrenchment                                         Turnaround




        ( FS = financial strength of the company; IS = industrial strength;
    ES = environmental stability; CA = competitive advantage of the company )
In order to enhance the use of SPACE (Strategic Position and Action Evaluation),
two items: the relative importance of each factor (R) and the chance of sustaining
the importance level of the factor (C) are added. A combined effect (E) is obtained
by multiplying these two items. The ranges of total value for E is approximately 0
to 50.


    Total E Value               Expectancy
        0 - 10                  low
       10 - 20                  low/moderate
       20 - 30                  moderate
       30 - 40                  moderate/high
       40 - 50                  high
       above                    very high


The total E values indicate that the likelihood of maintaining a given factor is as
shown above, whereas a basic SPACE analysis assumes they will continue at the
current level in the future.

								
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